Canada may soon be in bubble
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27/04/2010 10:00:00 AM
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Canada's housing market is in danger of being in a bubble, according to a report from investment firm Edward Jones.
"Canadian investors should prepare for the possible impact of a housing downturn on the economy," said the report. "Investors with well-diversified portfolios may need to take no action, but those considering additional real estate investments should be cautious."
Despite Canada not experiencing the same level of decline in other countries, today's condition's share two similar characteristics of harder-hit countries prior to their downturns, it said.
First, the typical Canadian home is worth five times the average individual's after-tax income compared to a long-term average of 3.7 times. According to the Canadian Real Estate Association, the average resale home price rose almost 20 per cent in 2009.
Second, credit is more easily attainable now than it was prior to the recession, according to the Bank of Canada's financial conditions index, which shows that residential mortgage credit between 2006 and 2008 increased at double the amount compared to 1997 through 2001.